Legal protection in an LLC versus an Umbrella Insurance policy

[Account Closed]

I've heard it said many times before that we should always hold our properties in an LLC. In fact I have done so in the past, with some cost, here in California. Some fairly prominent people in the industry suggest if you own multiple properties, you should own each one in an LLC nad have a master LLC own each of those, sometimes incorporated in a different state from where your properties exist, to take advantage of stronger legal protection. As the theory goes, if you wrap each property in two layers of LLC's in this way, it's very unlikely that your personal assets would be at risk due to a lawsuit relating to your investment properties.

However, I've heard a few people on BP prefer to hold properties personally, likely due to easier financing (FHA loan vs. commercial loan) and they cover their risk to their personal assets (due to a lawsuit) with an Umbrella insurance policy.

So, the question is, which one do you prefer, and why? LLC vs. Umbrella Policy

[Bryan O.]

@Account Closed something to consider is the direction of travel in a lawsuit. An LLC protects your personal assets from a lawsuit originating against the LLC. What protects your LLC assets from a lawsuit that originates against you? i.e. you run over grandma in your car and now they are going to sue you and take everything, including your interest in those LLCs. Or the oft-mentioned slip and fall suit. They are going to name your LLC, but they are going to name you personally as the owner and possibly manager. The umbrella can absorb that prior to your LLCs being compromised.

Both are protection, but they work in different directions. They are complimentary rather than exclusionary.